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Abstract

This study replicates and extends Dusenbury (1994). A sample of 132 New Zealand taxpayerparticipants
performed a laboratory experiment consisting of four decision problems relating to
tax situations and two decision problems relating to other financial contexts. The focus of
interest was the power of each tax context's stated prepayment position to induce a decision
frame (as predicted by Prospect Theory) capable of determining each participant's risk
preferences. The use of a repeated measures analysis of variance procedure (general linear
model) allowed for within-subject comparisons so that decision-frame-induced shifts in
individual participants' risk preferences across decision problems could be diagnosed. The
study found, with respect to the tax problems, that the predictions of Prospect Theory and the
findings of Dusenbury (1994) were generally supported. However, similar risk preference
shifts based on alternative decision frames, independent of prepayment position and all other
contextual information, were also detected.
When within-subject comparisons were also generated by contrasting of tax and non-tax
decision problems, identical apart from context, it was found that participants produced
evidence of dissimilar, context-sensitive risk preferences. Risk preferences were also found to
be stable for decision problems containing identical option sets and similar, but not identical
contexts. Also, a significant behavioural difference was detected between participants with
high cash floats and those with low cash floats; but this was not differentiated from an
awareness of cash float status variable in the study. Finally, while the underlying value
functions of the participants conformed to the predictions of Prospect Theory in the tax
contexts, there were some departures from the predicted form when the decision problem was
set in a gambling context.